When Ethiopia confirmed first case of COVID-19, on early March 2020, Tulu Moye Geothermal Operations (TMGO), a USD 800 million project set to generate 150 MW, kicked off drilling in Tulu Moye area; cement industry were just opening up for a foreign investor and investment bill, in a list of attractive areas open for foreign investors, has been rolling on hands of the legislative house.When AGOA delisted Ethiopia from AGOA, starting January 1, simultaneously eight local investors cashed-in six billion birr to plant coal washing factories (a fresh business in Ethiopia), National bank of Ethiopia (NBE) were handing over the first fintech license to ArifPay and Council of Ministers were on session on the establishment of Ethiopia sovereign wealth fund (EIH) with 100 billion capital.
When Ethiopia confirmed first case of COVID-19, Prime Minister Abiy Ahmed with two years in office, were in celerity of sizing-up and sketching true-blue economic pressures of inflation, lower forex reserve, trade balance deficits, debt sustainability stresses, lower private sector economic share and economic output with major stake from service sector (least performing agriculture sector). The pandemic, dropping remittance and export, made things worse in containing inflation, trade balance deficit, and debt distress. The National bank sector specific financial stimulus package offered fresh 3 billion birr loan for commercial banks with low interest rate for private sector loan, extending old but undue loans while the Ministry of finance economic stimulus package waive 78 billion birr due tax of the business sector availing a billion loans for SME and cooperatives.
When northern conflict started, in early November 2020, the massive currency demonetization and injection of new banknotes, which started in September, were 43 days less of the deadline; Mineral export earnings jumping 422 percent(2019-2020); UNCATD, in its Investment Trends Monitor Report, indicated Ethiopia remains relatively stable drawing USD 1.1 billion in Foreign Direct Investment inflows; Ethio telecom were on permission from NBE to start mobile money service; Development Bank of Ethiopia (DBE), policy bank, were on capital injection of 28.5 billion birr from council of Ministers, four times the pre-existing capital of 7.5 billion birr; Deloitte Consulting, hired as government transaction adviser, were starting looking for a strategic partner that would acquire 40 percent stake from Ethio telecom; foreign telecom operators had been filing expression of interest for telecom license; and the ten year economic plan started the first month of implementation.
Also read: Ethiopia’s ‘foreign investor’
After separate national institutional led steps, with bournes of recap and write-up, Ministry of Finance revealed a three year reform,‘Home-grown economic reform’, on the last days of August 2019, which unfortunately strained for implementation, within seven months, in the post pandemic global and national economic slowdown. The reform encompass macroeconomic reforms (solving forex challenges, inflation, finance, and debt distress), structural reforms (easing doing business constraints), and sector specific reforms (changes to sector-specific institutional and market failures). Just in a year, and three months away from fortuitous northern conflict, ten years national economic Plan dubbed,‘’Ethiopia: an African Beacon of Prosperity’ has been endorsed by Council of Ministers and passed through legislative organ ‘weigh in’. The reform mainly included: correcting the economic imbalance, addressing structural bottlenecks, and enhancing production and productivity. The plan targets included: quality economic development, ensuring private sector-led growth, realising competitiveness, institutional transformation, improving inclusivity and building green economy while its strategies include market orientation, state intervention, import substitution and export led planning. The reform had been pledged support by IMF in a loan of USD 2.9 billion, which in a half way getting into northern conflict; spawn non-payment of 2.4 billion throughout the end of reform years.
In the middle between the reform and plan, stretching a year, government officially requested G20 and Paris Club for Credit committee, and succeeding, Ethiopia welcomed inevitable pain and gain- lower access of commercial loan and opportunity to divert debt servicing budget to economic expenditures. The government turned to domestic credit, receivable in birr, issuing T-bills to SOEs and corporate and refraining from launching new fully government financed projects. However, boosting FDI was also critical to cover major and huge capital and input import bills payable in forex. Some of capitalized FDI projects include: Tulu kapi Gold mine (Tulu Kapi Gold Mines Sh.Co with 260 million USD), Tulu Moye Geothermal power plant ($1.5M technical grant and $800 project), Souflet Malt (60m£ malt factory)
The ascend pre-pandemic measures, among many other, include: avoiding non-concessional loans from foreign creditors for an unspecified period of time; a tripartite port development agreement with the United Arab Emirates (UAE) and the Government of Somaliland; passing PPP proclamation and setting up PPP Unit within Ministry of finance; amendment of the external loans and suppliers’ credit directive to permit foreign loan for the private sector from AfDB, which were out of reach for a decade; official plan to privatize six economic areas such as power, sugar, logistic and railway; implementing market led forex devaluation (liberalization); identifying PPP areas that could generate forex and increase private investment: initially three major expressway road projects, five major hydro power projects and eight solar power projects as infrastructure PP concessions; The WB arm, IFC, has pledged to invest on solar power and guarantee import bills, through trade financing program.; improving ease of doing business; With goal of developing banks liquidity, National Bank lifted requirement imposed on private banks to purchase bonds from Development Bank of Ethiopia (DBE), effective for the last eight years, in 27% of every loan disbursement at 3% interest rate with 5 years maturity.
Due to Covid-19 and northern conflict, neither the reform nor the plan could stage implementation space without inevitable strategic priorities and policy interventions trade-off. The three year ended reform assessed by experts of NBE and MoF on March 2022, just three months after AGOA delisting, identified lack of finance, Covid-19 and Northern conflict call off economic targets except privatization and hanging on the balance of external debt. The most crucial investment regime had been on the investment policy and legislative change had been opening all investment areas, except those listed under domestic investor exclusive list, fall under joint venture arrangements open for foreign investors. It is as simple as to say all investment areas in Ethiopia, except those exclusive lists, set under Article 4 of regulation 474/2020, are open for foreign investors. Even those exclusive could be opened for foreign investor by Ethiopian investment board, without a need for legislative house amendment..
The Global Partnership for Ethiopia (GPE) is a consortium of Vodafone, Vodacom, Safaricom PLC, Sumitomo Group, and CDC Group plc, awarded the license to become the first foreign Telecom operator in Ethiopia, also won at the Partnerships Awards 2022 held in London on May 19, 2022, under the category “Best Utilities project”, excerpt as ‘’ business case is entirely based on the sustainable development goals’’. The license together with this award hanged a cornerstone on positive prospects of business and investment in Ethiopia.
The license also amasses USD 830 million license fee and collected bid document sell price of 15,000 from each interested party. With the telecom infrastructure sharing between Ethiotelecom and Electric Utility with Safaricom Ethiopia, the government expect to earn in between USD 1.6-1.8 billion from the lease of telecom infrastructure and 140 million birr, from the first of the three phases, earning in dark fibre-optic sharing lease agreement with Ethiopia Electric Power (EEP) and 988.7 birr per pole in aerial fibre installation lease agreement with Ethiopia Electric Utility (EEU).
What is next?
While we are on this question, Ethiopia is drafting a law for joint venture opening of banking business and on the way of establishing stock market within 18 months. From the above narration, one thing seems to be clear, if not Covid and Northern conflict, the reform and plan could have got the space to contain at least inflation, debt distress, trade deficit and telecom privatization. Given the uncertainty we face, everyone needs to be able to exercise foresight. How high will petrol prices go in the next 6 months? Who will win next year’s election? No one could be certain either in low or in high. I know the evolving global disruption is getting increasingly crowded (with inflation, external debt, poverty etc) but this strikes me as compelling given the degree of commitment that could or already hardwired into most senior leaders…i.e. a focus on now/near rather than next; more risk management on less uncertainty; data collation and forecasting less overshadowing signal detection and fore sighting, attention on ‘what is’ at the expense of considering ‘what if’. So get back to the above narration and fill what is missed than what if…! That is your INVESTMENT!